AMG Reports Financial and Operating Results for the Second Quarter and First Half of 2007

Affiliated Managers Group, Inc. (NYSE: AMG) today reported its financial and operating results for the quarter and six months ended June 30, 2007. Cash Earnings Per Share ("Cash EPS”) for the second quarter of 2007 were $1.52, compared to $1.30 for the second quarter of 2006, while diluted earnings per share for the second quarter of 2007 were $1.04, compared to $0.86 for the same period of 2006. Cash Net Income was $60.3 million for the second quarter of 2007, compared to $50.3 million for the second quarter of 2006. Net Income for the second quarter of 2007 was $41.9 million, compared to $33.9 million for the second quarter of 2006. (Cash EPS and Cash Net Income are defined in the attached tables.) For the second quarter of 2007, revenue was $331.5 million, compared to $283.1 million for the second quarter of 2006. EBITDA for the second quarter of 2007 was $97.5 million, compared to $78.1 million for the same period of 2006. For the six months ended June 30, 2007, Cash Net Income was $115.7 million, while EBITDA was $186.7 million. For the same period, Net Income was $78.5 million, on revenue of $641.3 million. For the six months ended June 30, 2006, Cash Net Income was $103.2 million, while EBITDA was $156.6 million. For the same period, Net Income was $69.2 million, on revenue of $561.2 million. The aggregate assets under management of AMG’s affiliated investment management firms at June 30, 2007 were approximately $267 billion, an increase of $18 billion, or 7%, over the first quarter, and $64 billion, or 32%, over the second quarter of 2006. Net client cash flows for the second quarter of 2007 were approximately $578 million, with flows in the institutional, mutual fund, and high net worth channels of $245 million, $488 million, and $(155) million, respectively. "Our strong results for the quarter reflect our broad exposure in two of the most attractive areas of asset management, alternative investment products and international equities, and excellent investment performance by our Affiliates,” stated Sean M. Healey, President and Chief Executive Officer of AMG. "AMG delivered solid earnings growth during the second quarter with cash earnings increasing by 9% over the prior quarter, and 20% year-over-year.” "We were particularly pleased with the performance of our alternative products,” Mr. Healey continued. "AMG has a strong position in the fast-growing alternative investments area, with a number of leading Affiliates including AQR, First Quadrant, Third Avenue and Genesis managing a range of alternative investment strategies. Given our Affiliates’ outstanding performance in this area, we see a meaningful opportunity for substantial incremental earnings contribution from performance fees for the year.” "Another highlight of the quarter was the continued strong performance of our international equity managers, including AQR, Tweedy, Browne, Third Avenue and Genesis. With 35% of our EBITDA coming from international investments, we have excellent prospects for significant growth in this area,” Mr. Healey continued. "Finally, we had strong results from our domestic growth equity Affiliates, such as Friess Associates, TimesSquare and Essex. Most notably, Friess continues to build on its outstanding performance record as all of the firm’s investment products significantly outperformed their respective peers and benchmarks.” Mr. Healey concluded, "We continue to make excellent progress in our new investments area. In addition to our prospects for succession-oriented investments in traditional firms, we are pursuing a number of opportunities to invest in attractive alternative managers that are interested in a structure similar to our investment in AQR. Going forward, we are confident that we will continue to enhance our earnings growth through investments in both traditional and alternative firms.” AMG is an asset management company with equity investments in a diverse group of boutique investment management firms. AMG’s strategy is to generate growth through the internal growth of its existing Affiliates, as well as through investments in new Affiliates. AMG’s innovative transaction structure allows individual members of each Affiliate’s management team to retain or receive significant direct equity ownership in their firm while maintaining operating autonomy. In addition, AMG provides centralized assistance to its Affiliates in strategic matters, marketing, distribution, product development and operations. Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including changes in the securities or financial markets or in general economic conditions, the availability of equity and debt financing, competition for acquisitions of interests in investment management firms, the ability to close pending investments, the investment performance of our Affiliates and their ability to effectively market their investment strategies, and other risks detailed from time to time in AMG’s filings with the Securities and Exchange Commission. Reference is hereby made to the "Cautionary Statements” set forth in the Company’s Form 10-K for the year ended December 31, 2006. Financial Tables Follow A teleconference will be held with AMG’s management at 11:00 a.m. Eastern time today. Parties interested in listening to the teleconference should dial 1-800-240-8621 (domestic calls) or 1-303-262-2193 (international calls) starting at 10:45 a.m. Eastern time. Those wishing to listen to the teleconference should dial the appropriate number at least ten minutes before the call begins. The teleconference will be available for replay approximately one hour after the conclusion of the call. To access the replay, please dial 1-800-405-2236 (domestic calls) or 1-303-590-3000 (international calls) and enter the pass code, 11093489. The live call and the replay of the session, and the additional financial information referenced during the teleconference, may also be accessed via the Web at www.amg.com. For more information on Affiliated Managers Group, Inc., please visit AMG’s Web site at www.amg.com. Affiliated Managers Group, Inc. Financial Highlights (dollars in thousands, except per share data)   Three Months Three Months Ended Ended 6/30/06 6/30/07   Revenue $ 283,108 $ 331,464   Net Income $ 33,936 $ 41,887   Cash Net Income (A) $ 50,349 $ 60,331   EBITDA (B) $ 78,140 $ 97,528     Average shares outstanding - diluted 45,213,524 45,230,844   Earnings per share - diluted $ 0.86 $ 1.04   Average shares outstanding - adjusted  diluted (C) 38,733,290 39,746,763   Cash earnings per share - diluted (C) $ 1.30 $ 1.52       December 31,   June 30, 2006 2007   Cash and cash equivalents $ 201,729 $ 165,809   Senior debt $ 365,500 $ 389,500   Senior convertible securities $ 413,358 $ 408,977   Mandatory convertible securities $ 300,000 $ 300,000   Junior convertible trust preferred securities $ 300,000 $ 300,000   Stockholders’ equity $ 499,222 $ 591,949 Affiliated Managers Group, Inc. Financial Highlights (dollars in thousands, except per share data)   Six Months Six Months Ended Ended   6/30/06   6/30/07   Revenue $ 561,150 $ 641,301   Net Income $ 69,176 $ 78,509   Cash Net Income (A) $ 103,166 $ 115,700   EBITDA (B) $ 156,625 $ 186,661       Average shares outstanding - diluted 45,835,501 44,914,122   Earnings per share - diluted $ 1.67 $ 1.97   Average shares outstanding - adjusted  diluted (C) 40,302,526 39,235,642   Cash earnings per share - diluted (C) $ 2.56 $ 2.95 Affiliated Managers Group, Inc. Reconciliations of Earnings Per Share Calculation (dollars in thousands, except per share data)   Three Months Three Months Ended Ended 6/30/06 6/30/07   Net Income $ 33,936 $ 41,887     Convertible securities interest      expense, net (D)     4,938   5,119 Net Income, as adjusted $ 38,874 $ 47,006   Average shares outstanding - diluted 45,213,524 45,230,844   Earnings per share - diluted $ 0.86 $ 1.04     Six Months Six Months Ended Ended 6/30/06 6/30/07   Net Income $ 69,176 $ 78,509     Convertible securities interest      expense, net (D)     7,216   10,192 Net Income, as adjusted $ 76,392 $ 88,701   Average shares outstanding - diluted 45,835,501 44,914,122   Earnings per share - diluted $ 1.67 $ 1.97 Affiliated Managers Group, Inc. Reconciliations of Average Shares Outstanding   Three Months Three Months Ended Ended 6/30/06   6/30/07     Average shares outstanding - diluted 45,213,524 45,230,844    Assumed issuance of COBRA shares (6,823,797 ) (7,529,465 )    Assumed issuance of LYONS shares (2,143,391 ) (2,035,196 )    Assumed issuance of Trust Preferred     shares (1,956,044 ) (2,000,000 )    Dilutive impact of COBRA shares 3,511,664 4,940,033    Dilutive impact of LYONS shares 931,334 1,140,547    Dilutive impact of Trust Preferred     shares -   -   Average shares outstanding - adjusted  diluted (C) 38,733,290   39,746,763         Six Months Six Months Ended Ended 6/30/06 6/30/07     Average shares outstanding - diluted 45,835,501 44,914,122    Assumed issuance of COBRA shares (6,987,250 ) (7,401,708 )    Assumed issuance of LYONS shares (2,220,582 ) (2,057,456 )    Assumed issuance of Trust Preferred     shares (978,022 ) (2,000,000 )    Dilutive impact of COBRA shares 3,685,312 4,676,186    Dilutive impact of LYONS shares 967,567 1,104,498    Dilutive impact of Trust Preferred     shares -   -   Average shares outstanding - adjusted  diluted (C) 40,302,526   39,235,642   Affiliated Managers Group, Inc. Operating Results (in millions)   Assets Under Management   Statement of Changes - Quarter to Date   Mutual Fund   Institutional High Net Worth Total   Assets under management, March 31, 2007 $ 59,250 $ 160,676 $ 28,635 $ 248,561 Net client cash flows 488 245 (155 ) 578 Other Affiliate transactions (E) (105 ) (77 ) - (182 ) Investment performance   3,728     11,437     2,453     17,618   Assets under management, June 30, 2007 $ 63,361   $ 172,281   $ 30,933   $ 266,575         Statement of Changes - Year to Date   Mutual Fund   Institutional High Net Worth Total   Assets under management, December 31, 2006 $ 58,241 $ 154,725 $ 28,174 $ 241,140 Net client cash flows 621 2,439 (601 ) 2,459 Other Affiliate transactions (E) (1,069 ) (77 ) - (1,146 ) Investment performance   5,568     15,194     3,360     24,122   Assets under management, June 30, 2007 $ 63,361   $ 172,281   $ 30,933   $ 266,575   Affiliated Managers Group, Inc. Operating Results (in thousands)   Financial Results         Three Months Percent Three Months Percent Ended of Ended of 6/30/06 Total 6/30/07 Total Revenue Mutual Fund $ 125,450 44 % $ 139,687 42 % Institutional 118,702 42 % 150,979 46 % High Net Worth   38,956 14 %   40,798 12 % $ 283,108 100 % $ 331,464 100 %   EBITDA (B) Mutual Fund $ 33,592 43 % $ 37,433 39 % Institutional 35,021 45 % 47,142 48 % High Net Worth   9,527 12 %   12,953 13 % $ 78,140 100 % $ 97,528 100 %           Six Months Percent Six Months Percent Ended of Ended of 6/30/06 Total 6/30/07 Total Revenue Mutual Fund $ 246,664 44 % $ 272,945 42 % Institutional 238,496 42 % 287,573 45 % High Net Worth   75,990 14 %   80,783 13 % $ 561,150 100 % $ 641,301 100 %   EBITDA (B) Mutual Fund $ 65,897 42 % $ 74,741 40 % Institutional 71,172 46 % 87,513 47 % High Net Worth   19,556 12 %   24,407 13 % $ 156,625 100 % $ 186,661 100 % Affiliated Managers Group, Inc. Reconciliations of Performance and Liquidity Measures (in thousands)       Three Months Three Months Ended Ended 6/30/06 6/30/07   Net Income $ 33,936 $ 41,887  Intangible amortization 6,839 7,922  Intangible amortization - equity method investments (F) 2,316 2,328  Intangible-related deferred taxes 5,697 6,850  Affiliate depreciation   1,561     1,344   Cash Net Income (A) $ 50,349   $ 60,331     Cash flow from operations $ 130,357 $ 118,220  Interest expense, net of non-cash items 13,787 16,893  Current tax provision 11,453 16,045  Income from equity method investments,   net of distributions (F) 1,090 1,042  Changes in assets and liabilities and   other adjustments   (78,547 )   (54,672 ) EBITDA (B) $ 78,140   $ 97,528    Holding company expenses   12,009     14,003   EBITDA Contribution $ 90,149   $ 111,531         Six Months Six Months Ended Ended 6/30/06 6/30/07   Net Income $ 69,176 $ 78,509  Intangible amortization 13,693 15,865  Intangible amortization - equity method   investments (F) 4,632 4,634  Intangible-related deferred taxes 12,802 13,882  Affiliate depreciation   2,863     2,810   Cash Net Income (A) $ 103,166   $ 115,700     Cash flow from operations $ 128,274 $ 70,880  Interest expense, net of non-cash items 24,010 33,817  Current tax provision 25,244 29,057  Income from equity method investments,   net of distributions (F) (12,017 ) (9,193 )  Changes in assets and liabilities and   other adjustments   (8,886 )   62,100   EBITDA (B) $ 156,625   $ 186,661    Holding company expenses   24,384     28,017   EBITDA Contribution $ 181,009   $ 214,678   Affiliated Managers Group, Inc. Consolidated Statements of Income (dollars in thousands, except per share data)   Three Months Six Months Ended Ended  June 30,  June 30,   2006     2007     2006     2007     Revenue $ 283,108 $ 331,464 $ 561,150 $ 641,301   Operating expenses:  Compensation   and related   expenses 118,671 143,109 235,188 282,041  Selling,   general and   administrative   45,276 48,961 88,759 94,466  Amortization   of intangible   assets 6,839 7,922 13,693 15,865  Depreciation   and other   amortization 2,251 2,413 4,147 4,779  Other   operating   expenses   5,597     5,115     11,183     7,904     178,634     207,520     352,970     405,055   Operating income   104,474     123,944     208,180     236,246     Non-operating (income) and expenses:  Investment and   other income (2,014 ) (6,499 ) (5,371 ) (11,121 )  Income from   equity method   investments (6,467 ) (8,913 ) (12,066 ) (16,885 )  Investment   (income) loss   from Affiliate   investments in   partnerships (H) 9,321 (18,518 ) (1,508 ) (21,159 )  Interest expense     15,102     18,378     26,584     36,765     15,942     (15,552 )   7,639     (12,400 )   Income before minority interest and taxes 88,532 139,496 200,541 248,646 Minority interest(G)   (46,099 ) (54,780 ) (91,968 ) (103,253 )   Minority interest in Affiliate investments in partnerships (H)   9,199     (18,229 )   (1,004 )   (20,775 ) Income before income taxes 51,632 66,487 107,569 124,618   Income taxes - current 11,453 16,045 25,244 29,057 Income taxes - intangible-related deferred 5,697 6,850 12,802 13,882 Income taxes - other deferred   546     1,705     347     3,170   Net Income $ 33,936   $ 41,887   $ 69,176   $ 78,509     Average shares outstanding - basic 31,224,354 29,847,093 32,445,996 29,773,269 Average shares outstanding - diluted 45,213,524 45,230,844 45,835,501 44,914,122   Earnings per share - basic $ 1.09 $ 1.40 $ 2.13 $ 2.64 Earnings per share - diluted $ 0.86 $ 1.04 $ 1.67 $ 1.97 Affiliated Managers Group, Inc. Consolidated Balance Sheets (in thousands) December 31, June 30,   2006     2007   Assets Current assets:  Cash and cash equivalents $ 201,729 $ 165,809  Investment advisory fees receivable 201,385 187,725  Affiliate investments in partnerships (H) 108,350 117,737  Affiliate investments in marketable   securities 15,516 23,001  Prepaid expenses and other current assets   27,299     24,589      Total current assets 554,279 518,861   Fixed assets, net 63,984 66,885 Equity investments in Affiliates 293,440 281,435 Acquired client relationships, net 502,066 500,017 Goodwill 1,177,227 1,213,371 Other assets   74,924     99,041      Total assets $ 2,665,920   $ 2,679,610     Liabilities and Stockholders’ Equity Current liabilities:  Accounts payable and accrued liabilities $ 246,727 $ 166,085  Payables to related party   41,086     6,156      Total current liabilities 287,813 172,241   Senior debt 365,500 389,500 Senior convertible securities 413,358 408,977 Mandatory convertible securities 300,000 300,000 Junior convertible trust preferred securities 300,000 300,000 Deferred income taxes 218,584 232,393 Other long-term liabilities   11,209     31,494      Total liabilities 1,896,464 1,834,605   Minority interest (G) 166,138 140,088 Minority interest in Affiliate investments in partnerships (H) 104,096 112,968   Stockholders’ equity:  Common stock 390 390  Additional paid-in capital 609,369 634,128  Accumulated other comprehensive income 14,666 44,131  Retained earnings   654,465     732,974   1,278,890 1,411,623 Less treasury stock, at cost   (779,668 )   (819,674 )  Total stockholders’ equity   499,222     591,949    Total liabilities and stockholders’ equity $ 2,665,920   $ 2,679,610   Affiliated Managers Group, Inc. Consolidated Statements of Cash Flow (in thousands)   Three Months Six Months Ended Ended June 30,  June 30, 2006 2007 2006 2007   Cash flow from operating activities: Net Income $ 33,936 $ 41,887 $ 69,176 $ 78,509      Adjustments to     reconcile Net Income     to net cash flow     from operating     activities: Amortization of intangible assets 6,839 7,922 13,693 15,865 Amortization of issuance costs 728 778 1,391 1,534 Depreciation and other amortization 2,251 2,413 4,147 4,779 Deferred income tax provision 6,243 8,555 13,149 17,052 Accretion of interest 587 707 1,183 1,414 Income from equity method investments, net of amortization (6,467 ) (8,913 ) (12,066 ) (16,885 ) Distributions received from equity method investments 7,693 10,199 28,715 30,712 Tax benefit from exercise of stock options 424 613 3,434 4,152 Stock option expense 223 1,918 601 4,562 Other adjustments 1,266 (570 ) 1,268 585 Changes in assets and liabilities: (Increase) decrease in investment advisory fees receivable 6,808 (10,087 ) (640 ) 13,378 Decrease in Affiliate investments in partnerships 974 8,831 974 11,004 (Increase) decrease in prepaids and other current assets 2,924 (198 ) 5,415 593   (Increase) decrease in other assets (2,814 ) 4,210 1,070 (7,934 )    Increase (decrease)     in accounts payable,     accrued liabilities     and other long-term     liabilities 53,331 48,633 20,356 (61,241 ) Increase (decrease) in minority interest   15,411     1,322     (23,592 )   (27,199 ) Cash flow from operating activities   130,357     118,220     128,274     70,880     Cash flow used in investing activities: Cost of investments in Affiliates, net of cash acquired (7,669 ) (33,704 ) (17,027 ) (59,558 ) Purchase of fixed assets (4,801 ) (4,074 ) (11,937 ) (8,161 ) Purchase of investment securities (9,017 ) (258 ) (15,579 ) (12,758 ) Sale of investment securities   -     1     -     4,630   Cash flow used in investing activities   (21,487 )   (38,035 )   (44,543 )   (75,847 )   Cash flow used in financing activities: Borrowings of senior bank debt 206,000 41,000 313,000 177,000 Repayments of senior bank debt (231,000 ) (80,000 ) (294,500 ) (153,000 ) Issuance of junior convertible trust preferred securities 300,000 - 300,000 - Issuance of common stock 3,040 3,133 35,447 38,758 Repurchase of common stock (332,615 ) - (402,470 ) (109,003 ) Issuance costs (8,890 ) (200 ) (8,895 ) (1,756 ) Excess tax benefit from exercise of stock options 1,710 5,866 12,949 28,206 Cost of call spread option agreements - - (13,290 ) - Repayment of notes payable and other liabilities (1,112 ) (72 ) (5,602 ) (1,081 )    Redemptions of     Minority interest -     Affiliate     investments in     partnerships   (974 )   (8,831 )   (974 )   (11,004 ) Cash flow used in financing activities   (63,841 )   (39,104 )   (64,335 )   (31,880 )   Effect of foreign exchange rate changes on cash and cash equivalents 658 644 587 927 Net increase (decrease) in cash and cash equivalents 45,687 41,725 19,983 (35,920 ) Cash and cash equivalents at beginning of period   114,719     124,084     140,423     201,729     Cash and cash equivalents at end of period $ 160,406   $ 165,809   $ 160,406   $ 165,809   Affiliated Managers Group, Inc. Notes (A) Cash Net Income is defined as Net Income plus amortization and deferred taxes related to intangible assets plus Affiliate depreciation. This supplemental non-GAAP performance measure is provided in addition to, but not as a substitute for, Net Income. The Company considers Cash Net Income an important measure of its financial performance, as management believes it best represents operating performance before non-cash expenses relating to the acquisition of interests in its affiliated investment management firms. Since acquired assets do not generally depreciate or require replacement, and since they generate deferred tax expenses that are unlikely to reverse, the Company adds back these non-cash expenses. Cash Net Income is used by the Company's management and Board of Directors as a principal performance benchmark. The Company adds back amortization attributable to acquired client relationships because this expense does not correspond to the changes in value of these assets, which do not diminish predictably over time. The Company adds back the portion of deferred taxes generally attributable to intangible assets (including goodwill) that it no longer amortizes but which continues to generate tax deductions. These deferred tax expense accruals would be used in the event of a future sale of an Affiliate or an impairment charge, which the Company considers unlikely. The Company adds back the portion of consolidated depreciation expense incurred by Affiliates because under its Affiliate operating agreements, the Company is generally not required to replenish these depreciating assets. (B) EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. This supplemental non-GAAP liquidity measure is provided in addition to, but not as a substitute for, cash flow from operations. As a measure of liquidity, the Company believes EBITDA is useful as an indicator of its ability to service debt, make new investments and meet working capital requirements. EBITDA, as calculated by the Company, may not be consistent with computations of EBITDA by other companies. In reporting EBITDA by segment, Affiliate expenses are allocated to a particular segment on a pro rata basis with respect to the revenue generated by that Affiliate in such segment. (C) Cash earnings per share represents Cash Net Income divided by the adjusted diluted average shares outstanding. In this calculation, the potential share issuance in connection with the Company's convertible securities is measured using a "treasury stock" method. Under this method, only the net number of shares of common stock equal to the value of the contingently convertible securities and the junior convertible trust preferred securities in excess of par, if any, are deemed to be outstanding. The Company believes the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in available capital resources (which could be used to repurchase shares of common stock) that occurs when these securities are converted and the Company is relieved of its debt obligation. This method does not take into account any increase or decrease in the Company's cost of capital in an assumed conversion. (D) Convertible securities interest expense, net, includes the interest expense, net of tax, associated with the Company's contingently convertible securities and junior convertible trust preferred securities (but excludes the interest expense associated with the Company's mandatory convertible securities). (E) During the three and six months ended June 30, 2007, the Company transferred its interests in certain Affiliates. The financial effect of these transactions is not material to the Company's ongoing results. (F) The Company is required to use the equity method of accounting for its investments in AQR Capital Management, LLC, Beutel, Goodman & Company Ltd. and Deans Knight Capital Management Ltd. (together, "equity method investments"). Consistent with this method, the Company has not consolidated the operating results (including the revenue) of its equity method investments in its income statement. The Company's share of its equity method investments' profits, net of intangible amortization, is reported in "Income from equity method investments." Income tax attributable to these profits is reported within the Company's consolidated income tax provision. The assets under management of equity method investments are included in the Company's reported assets under management. (G) Minority interest on the Company's income statement represents the profits allocated to Affiliate management owners for that period. Minority interest on the Company's balance sheet represents the undistributed profits and capital owned by Affiliate management, who retain a conditional right to sell their interests to the Company. (H) EITF Issue No. 04-05, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights," ("EITF 04-05"), became effective January 1, 2006. EITF 04-05 requires the Company to consolidate certain Affiliate investment partnerships (including interests in the partnerships in which the Company does not have ownership rights) in its consolidated financial statements. For the three months ending June 30, 2007, the total non-operating income associated with those partnerships was $18.5 million, while the portion attributable to the underlying investors unrelated to the Company (the "outside owners") was $18.2 million; as of June 30, 2007, the total assets attributable to these investment partnerships was $117.7 million, while the portion owned by the outside owners was $113.0 million.